A Qualitative Approach of Identifying Major Cost Influencing Factors in Palm Oil Mills and the Relations towards Production Cost of Crude Palm Oil

Problem statement: The oil palm industry, which heavily depends on the world market, is an export oriented industry. World’s palm oil consumption was growing over the years. In addition, Indonesia and Malaysia dominated the oil palm industry. The oil palm industry in Malaysia is very competitive and become one of the major economic sectors contributing to the total revenue of the country. In year 2009, there was a total of 22.40 million tons of oil palm products including palm oil, palm kernel oil, palm kernel cake, oleo-chemicals and finished products, equivalent to RM 49.59 billion of export revenue. However, cost of production for Crude Palm Oil (CPO) varies in a big gap. Therefore, it is essential to identify the major cost influencing factors in the production of CPO. Approach: The study system started with collection of Fresh Fruits Bunches (FFB) from oil palm plantation to the production of CPO at palm oil mills. Two palm oil mills of different production capacity were chosen for this study. Statistical analysis was done to identify the major cost influencing factors of production cost for CPO. Results: The production cost of CPO for small scale palm oil mills preferably lied between RM 45 to RM 50 per metric tons while large scale palm oil mills lied below RM 45 per metric tons. Conclusion: Palm oil mills with higher production capacity were efficient in producing CPO than lower production capacity palm oil mills. Thus, the production cost of CPO was lower compared to that of small scale palm oil mills.